Dáil debates

Wednesday, 17 June 2009

Financial Services (Deposit Guarantee Scheme) Bill 2009: Committee Stage (Resumed)

 

Question again proposed: "That section 1 stand part of the Bill."

3:00 pm

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
Link to this: Individually | In context

We are on section 1 and I understand the Minister is in possession.

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

I am in possession and a number of points were made in speaking to section 1 by a number of Deputies. I was in the course of beginning to deal with them.

I had outlined the statistical data available to the Central Bank with regard to the estimate of the sums covered by this legislation. On the more general question raised by Deputy Burton about the sums covered by the guarantee under the credit institutions legislation, statistical data from the Central Bank and the Financial Services Authority of Ireland shows that as of March 2009, the total deposits in the Irish banking system amounted to €275 billion of which approximately €170 billion was owned by Irish residents. With regard to the numbers of accounts, evidence from a 2007 survey would suggested that about 8 million deposits were owned by Irish residents. Information from the Registrar of Credit Unions shows that 2.93 million members held €12 billion of deposits in the credit unions at the end of last year.

Disaggregated deposit data is not collected on a routine basis. However, data collected last year on an ad hoc basis would suggest that practically all deposit accounts by number would have a balance of less than €100,000. A survey of the main Irish domestic banks which was undertaken in June 2008 indicated that 97% of accounts by number had a balance of less than €50,000 and that 26% of accounts had, by value, a balance of less than €50,000. This suggests that while only a small fraction of accounts, by number, have a balance in excess of €50,000, those make up a large proportion of the value of total deposits. Some 3% of accounts by number account for almost 75% of the value of accounts. This points to the fact that both the total value of accounts over €50,000 and the average balance in these accounts is extremely large. From the survey it is not possible to do the above analysis with regard to €100,000, but it is possible to estimate roughly the value of deposits covered by a scheme with a compensation limit of €100,000. I outlined the total values in the earlier part of my reply before I moved the adjournment. I will provide more detailed tabular breakdowns as requested by Deputy Bruton and Deputy Burton.

Deputy Rabbitte referred to the position and status of Alan Dukes as a member of the board of Anglo Irish Bank and described him as a public interest director. He is not, of course, a public interest director because the bank was nationalised by legislation enacted by this House earlier this year. Hence, he is a director of the board appointed by the Minister, as are all the directors of Anglo Irish Bank. That is his position. He spoke and wrote about the subject for the bank recently, because evidence was given to an Oireachtas committee by the directors of the bank who explained the position of the bank to members who questioned them.

Deputy Burton raised the question of next week's proposal on the extension of the guarantee beyond the guarantee period for some categories of medium-term debt, which is in separate legislation. I have checked out the matter in the interval and this Bill stands as a separate Bill on the advice of the Attorney General, who believes a permanent feature of our banking landscape such as a deposit guarantee scheme should be kept separate from measures which were occasioned by the banking crisis or the financial emergency. It is not part of any deep-seated political or administrative conspiracy.

Likewise, the ruling of the Chair on what is acceptable as an amendment is not something my Department ever influences or seeks to influence. We had no function on this matter so it was not a "traditional attitude of the Department of Finance", to quote Deputy Burton, which resulted in her amendment being ruled out of order. It is simply the procedures of this House, for which I am not accountable, although I am accountable for many matters, which I accept.

Like the guarantee, the legislation on the extension of the guarantee is commonplace in the sense that the strategy has been adopted by virtually every other country in the EU and it will be the subject of a separate debate next week. I made an announcement about it in the budget.

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
Link to this: Individually | In context

Did the Minister indicate-----

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

I read much of that information into the record of the House and I undertook to provide the Deputy with a more detailed statement. The record will show a substantial amount of information about the value of the deposits concerned and the numbers we estimate are at home and abroad. One of the difficulties is that the exercise last year was done on a limit of €50,000 rather than €100,000 so the information is approximate, but I have undertaken to write to Deputies Bruton and Burton with the information.

Question put and agreed to.

SECTION 2.

Question proposed: "That section 2 stand part of the Bill."

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
Link to this: Individually | In context

Could the Minister explain the significance of 31 December 2010 in this section?

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

It is a transposition from the relevant EU directive. It is the requirement that the Minister's power to prescribe a higher level of coverage is up until 31 December 2010. That was a compromise arrived at by the finance Ministers when they were drawing up the directive.

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
Link to this: Individually | In context

Does that mean that from 2010 the coverage will diminish to some lower level?

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

At that stage the extent of the coverage will be subject to a review by the EU Commission but there will be no question of an immediate reduction in the coverage.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
Link to this: Individually | In context

I have a general question which may arise later in the sections. Under this Bill the responsibility for the guarantee scheme reverts to the Central Bank rather than to the Financial Regulator. Is that part of the proposed new architecture on regulation where the Central Bank is to be the main authority? We have had no discussion in this House on the architecture of regulation, although the Taoiseach promised a banking commission at the time of the Fianna Fáil Ard Fheis and, as I said previously, the Labour Party had proposed a banking commission. From a structural point of view what is the role of the Financial Regulator in this? Is the Central Bank to acquire pre-eminence vis-À-vis the regulator?

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

There are two distinct issues, namely, the reform of the regulatory structures and the Central Bank, and this precise section. They are not connected. The reason for this precise section is that the Central Bank holds the general account from which a payment would be required to be made in the event of this guarantee being called upon. The view of my advisors is that the appropriate agency to designate to make the payment is, therefore, the Central Bank since under current law and practice it holds the account.

Naturally and understandably Deputy Burton has asked wider questions on the regulatory system and the role of the Central Bank and the regulatory authority. The Government has considered these issues and a statement will issue in due course. The crucial issue is the recruitment of a new regulator and that process is well under way but we may have to be patient because it is vital we secure the right person for the job.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
Link to this: Individually | In context

I am anxious that we do not have a general debate about extraneous issues on each section.

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

The Government's proposal is to unify the two boards that exist separately for the regulator and Central Bank into a unified Central Bank commission. The Governor will preside over the commission, but accountable to that will be separate independent offices, one on the Central Bank side and the other on the regulator's side, the supervisor of regulation. One of the key issues we will have to consider in the enactment of the legislation, and I welcome views from all parts of the House on this, is how we make that system accountable to this House and what further check we insert into that system to ensure its robustness.

A considerable discussion is taking place and general conclusions will be arrived at by Heads of Government later this week on the future of the European regulatory system and the establishment of a college of supervisors at European level. A more robust supervision from Europe would be welcomed by the Government. We have supported the initiatives of the French and Government Governments on that. That is our international position on the question. Until we see the precise shape of the European supervision it is not possible to arrive at a final conclusion of what additional safeguards need to be written into our system regarding the Central Bank commission.

I am committed to the need for more intense Oireachtas supervision of the Central Bank commission. Whatever Oireachtas committee is designated as the body that should call the Central Bank commission or Governor for the purpose of hearing their views should have the capacity to sit in private as well as in public so a frank exchange of views can take place. I agree with Deputy Burton that one of the difficulties in this area has been the tendency on all sides to deny a problem exists. This is not a new problem. It has happened in every banking crisis the world has seen, going back to the South Seas bubble, which was a stock market crisis. The denial of a problem becomes part of the problem. The Oireachtas should have a part to play in assessing the Central Bank commission's work but that will be worked out in the details of the legislation.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
Link to this: Individually | In context

The scope of this debate has been broadened and I do not want to exclude Deputy Bruton from making observations on it.

4:00 pm

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
Link to this: Individually | In context

I want to revert to the original point I made. The Minister needs greater clarity on the significance of December 2010. If he is withdrawing this cover, even if not abruptly, if there is a hint that something will change in 2010 we need to know the criteria against which it changes. This, we understood, provides cover for people. People in this area need certainty above all else. If a review process is to be triggered in 2010 we need clarity on the exact nature of that review, whether the Irish Government has complete control over it and the Minister can make amending regulations, or whether there is a possibility with the new framework we will have from Europe that the Irish system may be told by Europe what the provisions are to be. We need clarity and I was not quite happy with the Minister's answer.

On the wider issue, the taxpayer is shouldering more responsibility, even in this measure, as well as in other measures we have yet to discuss. There is the sense that there must be a quid pro quo in this. One of my lingering feelings on this is that the offences are far from clear in our law. The long period during which the Office of the Director of Corporate Enforcement is assembling the case and the doubt as to whether some things that, to the layman, seem clearly wrong may have escape hatches based on strong legal advice suggest to me that, as one of the quid pro quos, we need to tighten our law. There needs to be a much clearer black and white definition as to what is unlawful. It would seem that regulators were in some doubt themselves and activities that, to the layman, were appalling seem to regulators to be in a grey area. It is very unsatisfactory if the professionals see things that we see clearly as black as being grey, which seems to have been the case. I do not pretend to have an encyclopaedic knowledge. The way in which it developed where explanations were offered and appeared to have been accepted, and legal advice was offered and appeared to have been accepted, seem to an outsider to be appalling practice and designed to conceal rather than reveal what was going on.

The Minister talked about the architecture of regulation and the role of the Oireachtas within that architecture, which is important. However, as he said in his closing comments, the architecture is considerably less important than the policies and the people who police them. We need a statement from Government as to the new policy, the new types of offences and the new approaches to operating that policy as well as Oireachtas oversight.

The issue of Oireachtas oversight arose when we discussed the Central Bank of Ireland legislation. Plainly, the Oireachtas did not have the forensic skills. We were presented with a much rosier view of what was going on than was the case by Central Bank of Ireland officials. There was a sense that they were also wearing the green jersey. The Central Bank of Ireland regulators felt it was their duty to tog out and show they would not undermine the international view of Ireland's system. That seems to be an inherent problem that needs to be overcome. I do not know whether it was unwillingness to look hard or they felt that patriotism dictated that they should present things in a certain way. That issue will remain as a problem that we will need to address. The architecture could be a major distraction from what the real issue should be, which is the policies and the people and the whistleblower attitude rather the donning the green jersey attitude.

Progress reported; Committee to sit again.